A global or national recession taking hold this year may be only a possibility, but businesses can in any case take steps to mitigate the impact, says Andrew Millet
This article was first published in the January 2020 UK edition of Accounting and Business magazine.
The economic future cannot be predicted with any certainty, but warnings by some economists of a looming national and global recession have to be treated seriously. After all, one of those warning of recession is David Blanchflower, a former member of the Bank of England committee that sets interest rates. He points out that the economic parallels with the period before the banking crash of 2008 are difficult to ignore.
The UK’s fortunes are inextricably linked to the health of the global economy. The US trade war with China has caused a larger drag on global growth than anticipated and the UK will suffer the economic repercussions.
The looming prospect of Brexit poses different threats to the UK economy. The uncertainty alone has created a hesitant consumer base in the UK. Customers are spending less and are more sceptical about retail brands than ever. It is a difficult time for businesses to maintain customer loyalty, as consumers are tightening their purses for fear of impending financial disaster.
At the time of writing, the Brexit (and general election) outcome was unknown, but Blanchflower and Andrew Sentance, independent business economist and former member of the Bank of England’s monetary policy committee, predict that leaving the EU with no deal will bring on a recession. A Boris Johnson-led government able to strike a new deal might negate this threat, but we could still end up with no deal if a free-trade agreement hasn’t been decided after the transition period. This unpredictability alone makes it all the more important for business owners to prepare for the worst.
It is challenging to prepare for the unknown, but businesses have survived recessions before and will do so again. Companies that prepare for every eventuality are the ones that survive in the face of adversity. Here are some key strategies to help your business manage economic uncertainty.
- Focus on existing customers. Consumers aren’t spending as much due to lack of brand trust and growing apprehension about the economy. Focusing on your existing customer base during testing financial times will deepen brand loyalty and grow customer confidence. Offer benefits and reasons to stay true to your brand.
- Implement an adjacency strategy. A recession is not the time to start looking into a wholly new profit stream, but you can’t let your services stagnate. Consider the viability of expanding into an area adjacent to your core products or services.
- Implement an extension strategy. If you are feeling bolder, consider taking your current service a little further and offering new and exciting opportunities or products to existing customers. Ensure you have a flexed forecast to fully prepare the business for all possible outcomes of this strategy.
- Forge powerful alliances. Mergers, acquisitions and alliances are all key strategies during a recession. Alliances offer a great way to expand your business without investing in anything completely new during times of uncertainty.
- Don’t be afraid to outsource. Outsourcing key elements of your business can save you time, money and financial anxiety during a recession. For example, outsourcing the accounting function may allow you to create scale and flexibility within your organisation.
- Reduce inventory costs. Assess whether your business has the leeway to cut costs without sacrificing the quality of its services or products. This will help to take the pressure off your finances.
- Don’t sacrifice your marketing budget. Companies often make cuts to their marketing budgets in response to financial anxiety. But there is no time more crucial to maintain your marketing efforts and show customers that your brand is tackling the recession and winning.
- Tighten up your corporate governance. Companies that see a downturn in performance are more likely to survive if they have a strong corporate governance backbone. A governance audit would be advisable if you want to reassure private shareholders or decide to sell the business.
Andrew Millet is a director at accountancy practice Wisteria
"Corporate alliances offer a great way to expand without investing in anything completely new during times of uncertainty"